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What does the future hold for G-SIIs?

What does the future hold for G-SIIs?

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The annual assessment process has resulted in few changes to this list, despite last year's change in assessment methodology adopted by the International Association of Insurance Supervisors (IAIS).

However, on 21 November, the Financial Stability Board (FSB) announced that it would not be publishing a 2017 list of global systemically important insurers (G-SIIs), with the G-SII policy measures continuing to apply to those groups set out in the 2016 list (PDF 160 KB).

The absence of a 2017 update will not come as a surprise to many, especially given challenges from the insurance sector regarding the emphasis on size within the assessment criteria, and moves by the IAIS to develop an activities-based approach to the identification of systemic risk in the insurance sector. However, work on the activities-based approach is still in its infancy and the IAIS currently intends for this to work alongside, rather than fully replace, the current assessment process.

However, the statement that the G-SII measures will continue to apply to the 2016 list does face challenges.

In reality, it is difficult to see how this will work in the US, given the Financial Stability Oversight Council no longer regards either MetLife or AIG as US systemically important financial institutions (SIFI). With only one of the three 2016 US G-SIIs yet to successfully overturn its SIFI status, it is difficult to see how US G-SIIs will be required to comply with the G-SII requirements. This could then raise challenges from the remaining six G-SIIs about an uneven (A) playing field.

In the meantime, the IAIS has confirmed that it is not intending revising its approach in the near-term, with an intended interim consultation on the activities-based approach later this year and full consultation next year. These consultations will be critical to the future development of both the G-SII list and G-SII measures.

If the future decision by the FSB is to place greater emphasis on the activities-based approach, then the current G-SII measures, such as the higher loss absorbency (HLA) capital buffer, may need to be repositioned to ensure they properly address the causes of systemic risk.

All insurance groups currently designated as internationally active insurance groups (IAIGs) should monitor developments in this area, responding to the consultations and determining what this could mean for any future G-SII classification. IAIGs should also continue preparing for the start of confidential reporting to their regulators of the insurance capital standard (ICS) from 2019.